Canadian Estate Cost Calculator
Are you a Canadian citizen who’s about to inherit the estate of a deceased loved one? This calculator can help you figure out how much you’ll be inheriting after probate, as well as how much you’ll be paying in estate taxes.
From the pull-down menu, select the province in which you reside. In the fields provided, enter all the necessary information about the estate, including cash balances, real estate holdings, and investment accounts. Tax information will populate automatically.
Once you’ve filled in all the appropriate fields, you’ll receive a breakdown of the estate’s value following probate under the “Your Results” section. Each time you add or change an entry, clicking the tab key will recalculate the Estate Cost.
Your Guide to Canadian Estate Taxes
The grief felt as a result of losing a loved one is often overwhelming. Regardless of whether it came suddenly or at the end of a long illness, those left behind will have much to deal with, emotionally and otherwise. Proper estate planning can help ease the burden of your passing by simplifying complex financial issues for your beneficiaries, ensuring they inherit the assets you intended to pass on to them and minimizing your estate's exposure to certain taxes.
Canadian Estate Taxes
Unlike many other countries, Canada does not enforce an estate tax as such. However, something called a deemed disposition tax does apply when you die, and it is similar to an estate tax.
Unless transferred to a surviving spouse, all of your investments are considered sold at the time of your death, and any capital gains as a result of that sale are taxable. In the year of your death, those capital gains, life insurance proceeds, stocks, bonds, and real estate investments, and the values of any retirement accounts, such as registered retirement savings plans and registered retirement income funds, are included in your final income tax return.
All of these assets can be taxed in a top tax bracket, resulting in a significant financial loss and an even bigger burden to your beneficiaries. Without proper estate planning, these tax liabilities pass on to them, so it is critical that you plan ahead.
Creating a Will
To make sure your final wishes are carried out exactly the way you intended, create a will and make sure it stays up-to-date. There are three types of wills in Canada.
A living will allows you to appoint an agent to act on your behalf regarding medical treatment should you be incapable of communicating your wishes. It lets family, courts, and health care providers know whether you want to stay on life support or undergo particular medical procedures. Your agent is responsible for making sure your wishes are met.
A power of attorney is a crucial step in estate planning. It allows you to appoint an agent, most commonly a spouse or common-law partner, to handle your financial affairs if you're incapable of handling them yourself. Your agent can pay your bills, handle your taxes, vote, bank, and open your mail on your behalf. No one, not even your spouse, can legally do any of these things without a power of attorney.
Finally, a last will appoints an executor of your estate and gives them instructions on how to distribute your assets after you die. A last will is read following a funeral, so it's not meant to give instructions about burial or funeral wishes.
The Consequences of Not Having a Valid Will
In Canada there are consequences for not having a valid will upon death. Without one, you are considered to have died intestate, meaning the province is responsible for distributing your assets the way it sees fit, even if that doesn't comply with what you want. Typically, the first $50,000 goes to a living spouse and the rest is divided among children. If you don't have a spouse or children, the assets go to your parents, while siblings are next in line.
In addition to not having any say about your estate's distribution, dying without a will also leads to extra expenses and delays. Rather than getting to hand-select executors, the province will do that on your behalf, which is expensive and time-consuming. A court-appointed executor will be in charge of distributing your assets, and a public trustee will be responsible for handling assets passed on to a minor.
Setting Up a Trust
Should you decide to pass on assets before your death, you may decide to set up a trust. It's more legally binding than a will, it prevents you from having to go through the probate process, and it can significantly reduce the amount of taxes your estate is exposed to. A trust involves three people:
- The settlor, the person who starts the trust by selling or gifting their assets to a trust.
- The beneficiary(ies), the person who will become the owner of the trust assets.
- The trustee, the person who the beneficiary appoints to manage the assets on their behalf.
There are two types of trusts, living and testamentary, and each is taxed differently.
A revocable living trust instructs trustees, which could include you and your spouse, on how to distribute assets while you're alive, after death, or if you should become incapable of managing your estate. Following your death, your spouse can continue as a trustee, but he or she can only make limited changes to the trust terms. Often, people use this sort of trust to shift income to a lower tax rate family member, such as a child over the age of 18, to reduce the tax burden.
You must be 65 years old to establish alter-ego or joint spousal living trusts, which allow you to avoid capital gain taxation when transferring assets and minimizing probate exposure. Alter ego trusts defer the tax until your death, while joint spousal trusts defer the tax until your spouse's death.
A spousal testamentary trust is created by a will following your death, passing on your assets solely to a spousal trust on a tax-free basis. Your spouse will not be subject to capital gain taxation, and the spousal trust is taxed at individual tax rates rather than Canadian trust rates.
If your beneficiaries are children, you might set up a multiple testamentary nonspousal trust. It functions much like a spousal testamentary trust, with beneficiaries being taxed at graduated rates. Typically, each child receives their own separate trust, resulting in more tax savings.
While we know that death is inevitable, it can be easy to put off planning your estate. However, doing so early not only reduces the amount of stress and worry your loved ones will feel upon your passing, but it can also benefit your family now by lowering your estate's exposure to unkind tax rates.